Search Results
Working Paper
Delphic and Odyssean Monetary Policy Shocks: Evidence from the Euro Area
We use financial intraday data to identify monetary policy surprises in the euro area. We find that monetary policy statements and press conferences after European Central Bank (ECB) Governing Council meetings convey information that moves the yield curve far out. Moreover, the nature of the information revealed in a narrow window around these statements and press conferences evolved over time. Until 2013, unexpected variations in future interest rates were positively correlated with the changes in market-based measure of inflation expectations consistent with news on future macroeconomic ...
Working Paper
The Aggregate Effects of Sectoral Shocks in an Open Economy
We study the aggregate effects of sectoral productivity shocks in a multisectoral New Keynesian open-economy model that allows for asymmetric input-output linkages, both within and between countries, as well as for heterogeneity in sectoral Calvo-type price stickiness. Asymmetries in the international production network play a key role in the model’s ability to produce large domestic effects of foreign sectoral supply shocks and large differential effects of domestic shocks and global shocks. Larger trade openness and substitutability between domestic inputs and foreign inputs can also ...
Working Paper
Household Beliefs about Fiscal Dominance
We study beliefs about fiscal dominance using a survey of German households. We first design and conduct a randomized controlled trial to identify how fiscal news impacts individuals’ debt-to-GDP and inflation expectations. We document that the link between debt and inflation crucially depends on individuals’ views about the fiscal space. News leading individuals to expect a higher debt-to-GDP ratio makes them more likely to revise their inflation expectations upward. These average effects are driven by individuals who think that fiscal resources are stretched. By contrast, individuals ...
Report
How Much Did Labor Productivity Gains Offset the Inflationary Impact of the 2025 Tariffs?
In 2025, the average realized tariff on U.S. imports rose from about 2.5 percent to about 10 percent. The resulting increase in U.S. firms’ input costs had the potential to raise inflation significantly and explain why inflation remained significantly above the Federal Reserve’s 2 percent target last year. On the other hand, as the tariffs took hold, U.S. workers’ productivity grew, which could have helped companies reduce their costs and thereby mitigate inflationary pressures from the tariffs. To study the extent to which productivity gains may have offset the tariff-driven cost ...
Working Paper
Do Multisectoral New Keynesian Models Match Sectoral Data?
We document empirical regularities of disaggregated inflation and consumption and study whether multisectoral New Keynesian models can explain them. We focus on higher moments of the inflation and consumption growth distributions as well as on the contemporaneous comovement of these two variables. We find that the sectoral distributions of inflation and consumption growth are asymmetric, with inflation skewed negatively and consumption growth positively. Both distributions are highly leptokurtic. In the full sample, from the mid-1980s through 2021, sectoral inflation and consumption growth ...
Working Paper
Higher-order Moment Inequality Restrictions for SVARs
We introduce a method that exploits some non-Gaussian features of structural shocks to identify structural vector autoregression (SVAR) models. More specifically, we propose combining inequality restrictions on the higher-order moments of the structural shocks of interest with other set-identifying constraints, typically sign restrictions. We illustrate how, in both large and small sample settings, higher-order moment restrictions considerably narrow the identification of monetary policy shocks compared with what is obtained with minimal sign restrictions typically used in the SVAR ...
Working Paper
The Future in Today’s Prices: Evidence from a Survey of U.S. Firms
Do firms adjust prices to realized costs, expected costs, or both? We address this question using a new survey of U.S. businesses that separately measures realized cost changes since the last price adjustment and expected cost changes over the subsequent year, including portions attributable to 2025 trade policies. Using perceived tariff exposure as an instrument, we identify the causal effects of realized and expected costs on prices. Reset prices incorporate almost 70 percent of current costs and nearly 45 percent of expected costs over the next year. The importance of these channels varies ...
Journal Article
Inflation: Drivers and Dynamics 2020 Conference Summary
To provide insights into the processes that drive inflationary dynamics, the Federal Reserve Bank of Cleveland holds an annual conference on the topic of inflation: the Inflation: Drivers and Dynamics series. The 2020 installment of the conference was held on May 21-22, 2020. This Commentary summarizes the papers at the conference, which broadly fell into four categories: (1) empirical Phillips curves, (2) networks and Phillips curves, (3) expectations formation, and (4) price-setting behavior and inflation.
Working Paper
Should the ECB Adjust Its Strategy in the Face of a Lower r*?
We address the question in this paper’s title using an estimated New Keynesian DSGE model of the euro area with trend inflation, imperfect indexation, and a lower bound on the nominal interest rate. In this setup, a decrease in the steady-state real interest rate, r*, increases the probability of hitting the lower bound constraint, which entails significant welfare costs and warrants an adjustment of the monetary policy strategy. Under an unchanged monetary policy rule, an increase in the inflation target of eight-tenths the size of the drop in the real natural rate of interest is ...
Report
Why Have Inflation Expectations Surged Recently? A Historical Perspective
How much of the most recent surge in inflation expectations, which began in March 2025, has been the result of the usual effect of abnormal price movements? How much is left unexplained and may signal a potential de-anchoring of inflation expectations? How do the most recent and the pandemic-era surges in expectations compare with the two surges in the Great Inflation episode of the 1970s? This brief addresses those questions using data on inflation expectations from the University of Michigan Survey of Consumers and a simple regression model in which households form their inflation ...